The Focused Assessment program is a systematic risk-based approach to auditing in which the auditing team evaluates a company’s Customs and Border Protection (CBP) related internal controls to determine the likelihood of non-compliance and assess “risk.”
As shown by the definition above, and probably presumed by most importers when it receives the phone call indicating that an audit will be occurring in the (near) future, when US Customs comes in to do one, it already suspects some wrong doing on the part of the importer.
This does not mean, however, that an importer was knowingly or intentionally engaged in “risky behavior,” which can take many possible forms, such as classifying merchandise with an erroneous tariff number, or failing to add into the dutiable value of a product an item supplied by the importer (to its manufacturer) for incorporation into the merchandise ultimately imported, which is commonly referred to as an “assist.”
An example of this would be a women's sleepwear importer supplying bows to its vendor for attachment to robes or night gowns that it imports. Under US Customs regulations pertaining to “valuation” (which in everyday language, is the methodology for determining the dutiable value of imported merchandise), both the cost of the article supplied by the importer AND the cost of the freight to ship it to the vendor must be added to the invoice value of the imported merchandise. This of course, can be a tricky thing to calculate but alas, it is not the subject of this blog post so I will continue with my discussion on focused assessments. (If you have a valuation question, feel free to email me).
There are three (3) distinct phases to a focused assessment.
1. Pre-Assessment Survey: An evaluation of a company’s internal controls over US Customs related operations
2. Assessment Compliance Testing: “Transaction testing” used to measure compliance and/or to determine a loss of revenue (i.e., an amount of duties that the government believes should have been paid on certain importations), and
3. Follow-up Review: Verification of a company’s corrected action
The primary areas US Customs focuses on during an assessment are valuation, classification, anti-dumping/countervailing duties, transshipment and intellectual property rights. Secondary areas for assessment include, foreign trade zone activity, special trade programs, such as NAFTA (North American Free Trade Agreement) and special duty provisions, which are those found in Chapter 98 of the HTSUS (Harmonized Tariff Schedule of the United States).
Key features of a focused assessment include:
a) The identification of imports that represent the greatest risk of trade noncompliance
b) The evaluation of the adequacy of a company’s internal control system, and
c) Methods for improving future compliance by identifying risk and reducing it.
But how does US Customs go about evaluating the adequacy of a company’s internal control system? It does so by looking at the following five (5) specific components of a company.
The first is what US Customs refers to in its focused assessment literature as a company’s “Control Environment,” as this apparently “sets the tone of an organization, influencing the control consciousness of its people.” I must admit, even though US Customs attempts to keep importers informed, language such as this “control environment” definition leave little to be understood.
What it is really getting at however, is the question of “What procedures are in place to maintain checks and balances within a company across company activities?” And, given that US Customs is making this inquiry, this question is focused on a company’s import activities.
The second is “Risk Assessment,” that is, Customs recognizes that multiple external and internal risks are faced by each company, and that these risks must be identified and analyzed. It therefore wants to see that a company has made this identification of potential risks across company activities.
The third is known as, “Control Activities,” which are the policies and procedures in place to ensure that management directives are implemented.
The fourth area US Customs is looking at is categorized as “Information and Communication” wherein the identification and summation of information that supports all other control components is communicated throughout a company’s personnel and those entities it works with (that have reason to be communicated to, with respect to “controls.”)
The fifth and final area, is that of “Monitoring,” which evaluates a company’s internal systems.
An evaluation of these five components occurs in the pre-Assessment Survey portion of the focused assessment. Depending on the results of this survey, determines where US Customs goes next with its auditing actions.
In my experience, these audits are time consuming, disruptive to regular business, and may leave an importer in a sleep deprived state. All the more reason to stay both informed and on top of US Customs compliance guidelines.
Questions/comments? Post below or email me at clark.deanna@gmail.com.
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